A worker assembles an Oreck vacuum at the company's Cookeville, Tenn., plant in October 2006. / John Partipilo / File / The Tennessean

Written by

G. Chambers Williams III

The Tennessean

:

TTI/Royal outbid the founding Oreck family by about $1 million; the family was attempting to regain control of the company it began 50 years ago, but sold in the late 1990s. / File

June sales strong

According to company officials, Oreck recorded net sales for June of $10.1 million and net income for the period of $167,000. The positive operating performance allowed the company to pay down debt by $257,000 during June.

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All 200-plus Cookeville, Tenn., factory employees and at least 15 of the Nashville headquarters staff of the Oreck Corp. would be retained by the new owner under a purchase agreement scheduled to be approved today in U.S. Bankruptcy Court in Nashville.

But the 100 Oreck-owned factory outlet stores would be sold or closed after purchase of the bankrupt vacuum-cleaner maker by the Ohio-based TTI Floor Care North America and its subsidiary, the Royal Appliance Manufacturing Co., the deal specifies.

Details and a transcript of last week’s auction and the winning bid by TTI/Royal of Oreck’s assets were filed with the bankruptcy court on Monday, and pending approval today by the court, the sale would be completed on July 24. TTI/Royal outbid the founding Oreck family by about $1 million; the family was attempting to regain control of the company it began 50 years ago, but sold in the late 1990s.

“We would want to continue manufacturing in Cookeville,” Simon Lawson, CEO of TTI Floor Care North America, told participants July 8 at the closed auction. “We think that the Cookeville site and the employees at Cookeville offer a significant advantage to the business.”

TTI/Royal submitted the winning bid of $17.25 million for Oreck, along with agreeing to accept some of its debts. The deal as structured would allow TTI/Royal to avoid potentially more than $1 million in obligations to laid-off employees under the federal WARN act, which requires large employers to give workers at least 60 days’ notice before layoffs or face penalties.

Keeping the Cookeville workers and at least 15 of the headquarters staff would mean no WARN obligations would be triggered, according to the purchase agreement.

The Cookeville plant is of value to TTI/Royal and actually could be expanded, with more employees hired, Lawson said during the auction. Most of TTI/Royal’s products, including Hoover and Dirt Devil vacuum cleaners, are now made in China.

“What China is good at is manufacturing high-volume, relatively low-cost products,” Lawson said. “What it’s not so good at is manufacturing low-volume, high-value products, and we see the benefit of having a U.S.-based manufacturing facility to [make those products] as being significant. We would look at ... moving non-Oreck production into that facility over the next 12 to 18 months.”

As for the Nashville headquarters, which the purchase agreement indicates has 60 employees, Lawson said, “Clearly, there’s some crossover there with what we do at our other offices. However, we do believe that a certain proportion of the employees there are necessary,” including “those in marketing, IT, and some of the people in sales.”

Stores not in plan

The company-owned stores, though, are not part of Oreck’s future under TTI/Royal, Lawson said.

“I think the most challenging thing for us as a business is the company-owned stores,” he said. “We don’t run any stores currently, and frankly I’m not a retailer.”

But he said TTI/Royal recognizes “the value in the stores,” and would seek to divest them by selling them to their current managers, other independent Oreck store owners or other buyers.

TTI/Royal would help the company stores have a “soft landing” as they are divested, by subsidizing rents for up to a year for their new owners, Lawson said.

The only other bidder was the Oreck family, whose final offer was for $15.3 million cash and the assumption some debt. But the Oreck family’s deal would not have involved any worker layoffs, and the company stores would have been retained.

With the divestiture, staffs of the current Oreck-owned stores would no longer be Oreck employees, although they could potentially remain with stores that are taken over by independent operators. There already are about 250 independently owned Oreck factory outlets, including four in the Nashville area, and those would not be affected by the sale.

After TTI/Royal made its $17.25 million bid, the Oreck family did not counter, and the auction was closed, said Bill Norton, the Nashville attorney representing the Oreck Corp. in the bankruptcy case and the person who conducted the auction. But the total values of the competing bids, including assumed debts and other liabilities, weren’t immediately clear.

Provisions in Royal’s bid also would guarantee continuing coverage of warranty claims on Oreck products. Some of the vacuum cleaners have lifetime limited warranties, and others have coverage from 5-7 years. Those warranties often include periodic “tune-ups” of the machines at the Oreck Home Care centers.

Employees who transition from Oreck to TTI/Royal would be able to roll over their 401(k) savings plans and loans to TTI’s plan, the agreement says.